Lessons from GDPR: Regulations Harm Consumers by Reducing Options

Government attitudes toward technology are changing. A number of legislators, from both the right and left, want to find ways to regulate the sector. This is especially true regarding online platforms.

Many proposed regulations are not well-thought through. Instead, they are knee-jerk reactions to particularly popular stories. Congress reacts to a researcher abusing his Facebook privileges to help a Trump-affiliated campaign consultant. Congress reacts to interest groups lobbying for changes to intermediate liability because of the government’s perceived inability to combat sex trafficking. Congress reacts to the alleged political bias of various platforms.

Governments sell most regulatory schemes to the public as “for the benefit of the consumer.” But what benefits the consumer most, overbearing government regulatory schemes or increased competition? What governments fail to understand is how regulations impact the technology sector, or any sector, as a whole.

Whenever a government proposes new regulatory schemes, companies must spend money complying with the schemes. The more burdensome the regulatory scheme, the more money is spent in compliance costs. Innovators and small businesses often do not have the resources to create products and comply with regulations.

In Europe, the European Commission enacted the General Data Privacy Protection Act, or GDPR. Recently, a number of small businesses announced that they do not have the resources to comply with the regulations and, as a result, will either shut down or stop offering their services to Europeans.

In the United States, the State of South Dakota challenged long-standing precedent requiring a business to have a physical presence in a state prior to the state collecting sales tax from the business. If the Supreme Court reverses over 50 years of case law and ignores the very reason why the Commerce Clause is in the Constitution, small businesses and innovators will no longer have access to a national marketplace. As the roughly 12,000 taxing jurisdictions in the United States realizes an opportunity to tax innovators not within their boundaries, innovators will not have the financial resources to comply with audits and the taxing schemes from all those jurisdictions.

The companies that will survive are the companies with significant financial resources. Google, Facebook, Twitter, Microsoft, Amazon, and other similar technology companies have the ability to invest tens of millions of dollars complying with regulations. Innovators and small businesses do not. This leaves small businesses with a choice: limit their services to a specific area, such as a specific state, or exit the sector entirely.

If a small business chooses either of the latter two options, consumers are harmed. Consumers have fewer options to choose from and innovators who may create a new, better way to do business will not emerge.

Government regulatory schemes have two principle ends. They harm consumers by reducing competition and they insulate existing large companies. If a government is serious about benefiting consumers, it will find ways not to apply heavy-handed regulatory schemes to the technology sector. The government should allow the light-touch, consumer-focused regulatory system to flourish.

Whether improving processes, creating products or developing new ideas, the application of technology can enable real changes in how state government works, both in quality of services delivered to constituents, cost savings and quality of life. States have the opportunity in our national balance of government power, to address policy …